A Chinese bike-sharing company has gone out of business after 90% of its bikes went missing in the first five months.

Chongqing-based Wukong Bikes said the bulk of its 1,200 two-wheelers were lost or stolen.

Unlike rivals, the firm did not put GPS systems on its bikes and by the time it realised the technology was necessary, money had run out.

It is believed to be the first bankruptcy of China’s booming bike-sharing industry.

A free ride

Billed as “Uber for bikes”, China’s tech giants have been funding sophisticated bike hire businesses as a potential solution to congested roads.

Tencent-backed Mobike and Ofo, supported by Alibaba and Xiaomi, are dominating the market.

But Wukong was a much smaller player, aimed mainly at students in the city.

Founder Lei Houyi told local media that as well as the lack of GPS, his firm had struggled because its bikes were of inferior quality to those used by its larger competitors and were damaged too easily.

He added that while users were initially charged, Wukong resorted to giving away bicycles rides for free to try and compete with other players.

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When Paris joined forces with JCDecaux to launch the first modern bike-share system in 2007, it created a model for bike sharing around the world. A decade later, cities and operators are working together in hundreds of cities worldwide to fill an essential urban mobility need: short, one-way bike trips.

But starting in January, a new model hit the streets in cities across the U.S. Sometimes called “rogue bike shares,” these systems are rolled out by private operators without any discussion or coordination with local government or bike-share operators. From BlueGoGo in San Francisco, to Spin in Austin, and LimeBike in smaller cities across the West Coast, these systems are deeply subsidized by venture capital and offer alluring prices to riders. They have been hailed as the next innovation in bike share—cheaper and better for users and cities alike. But how much does bike sharing need to be “disrupted,” and what do cities and residents actually stand to gain?

At $1 per trip, rogue bike share sounds like a great deal. But if you take more than one trip or rely on the system for a daily commute, it gets pricey fast. A person using bike share to get to work, taking two trips per weekday, would pay $2 a day, $10 a week, or $40 a month. Compare that to established systems, where the more often you ride, the cheaper each trip gets. A Relay rider in Atlanta or a Citi Bike rider in New York pays only $15 per month. Riding to and from work, five days a week, means that each trip cost 35 cents. For low-income people, bike share can be even cheaper, as an increasing number of cities offer subsidized passes. A low-income Philadelphian with an AccessPass membership to Indego pays $5 per month, or just 11 cents per trip.

Even with higher prices, it’s not clear that the rogue business model can actually survive. Because the systems are so new, it’s tough to know exact revenues and costs, but the fundamental premises of their business model raise red flags about their overall financial viability.

Bikes don’t stay equitably distributed without a significant investment in rebalancing and staffing.

Rogue systems rely on high trip volumes to break even. NACTO’s estimate1suggests that a 2,000-bike system with bare-bones staffing would need to rack up more than 4 rides per bike per day in order to break even. This is well above the current U.S. bike-share average. New York’s Citi Bike, the most heavily used bike share system in the U.S., averages 3.8 rides per bike per day annually. Velib’ in Paris, arguably the most extensively used system in the Western world, averages 5.3 rides per bike per day. Systems in small and medium-sized U.S. cities average from 0.5 to 2 rides.

To break even at these rates, rogue companies can either raise prices or reduce operating costs. That means cuts to bike maintenance, rebalancing, and outreach. The problem is that bike-share users, like transit users, care about reliability and convenience. Annual surveys from Washington, D.C. repeatedly show that the ability to “get around more easily” is the most common reason for using bike share. People won’t ride if bikes are hard to find or damaged. And the bikes will break: In one conversation with a rogue bike-share company, a city official was told that the company offered two bike models, the “good” 2-year life-expectancy option and another model expected to last less than a year. Can a business model be sustainable with a full system replacement every two years?

Equitable service

In established bike-share systems, private or nonprofit operators are tasked with providing equitable service, and partnerships with cities serve as levers to make it happen. To be successful and equitable, people must be able to easily find safe, high-quality bikes throughout the coverage area, in both high- and low-income neighborhoods. For even the most successful systems, this has been a challenge. For the rogue systems, the lower density and trip volumes in low-income neighborhoods would likely deter them from providing service there.

Additionally, bikes don’t stay equitably distributed without a significant investment in rebalancing and staffing. Established smart-bike and smart-dock systems spend considerable money to make sure bikes get back to the places where people want to start their trips. In contrast, free-floating bikes tend to gravitate toward central business or tourist districts. In San Francisco’s busy areas, BlueGoGo’s bikes often clogged existing bike racks, sidewalks, and Muni platforms. The reliance on an app compounds this problem: if you don’t have a smartphone, or are just out of battery, finding a bike is a matter of pure luck.

With over 102 million trips since 2010, U.S. bike share has an exceptional safety record, and some of this is due to high bike quality and design. The existing bike-share bikes are built with robust, tamper-proof parts, feature always-on front and rear lights, and are extensively stress-tested and routinely maintained. But, to date, the rogue companies have not followed suit; their bikes seem unable to withstand heavy usage. Spin’s one-week pilot in Austin during SXSW resulted in numerous broken bikes, many with extreme damage like bent seat posts and falling off gears.

Can rogue bike share pay a living wage?

In just seven years, U.S. bike share has created nearly 1,500 jobs, many paying a living wage. In D.C., Boston, New York City, and Chicago, bike share jobs are union, meaning operators pay living wages and provide full health benefits for employees. In Philadelphia, Atlanta, Jersey City, and New York City, partnerships with workforce development organizations focus on finding good jobs for low-income residents.

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Given the business model of rogue companies, it’s unlikely they could do the same. NACTO’s estimate suggests that, even at an unlikely 4 rides per bike per day, wages for all rogue bike-share jobs, from CEO to mechanic, would be capped at $16 per hour. At a more plausible 2 rides per bike per day, companies would have to cut all wages to $6.50 per hour.

On razor thin margins, it seems unlikely that the companies could afford community ambassadors, workforce training, community ride staffing, or learn-to-ride instructors. But, as Citi Bike ridership results from Bedford Stuyvesant, Brooklyn, attest, building a strong bike share system requires engagement and outreach. Shortchanging these jobs can increase community tensions and hurt the bottom line.

In thinking about cycling, mobility, and equity, the promises of these companies warrant closer scrutiny, not least because of the impact they could have on well-functioning, city-approved systems. In the worst-case scenario, rogue companies could drive out their competition through artificially low prices, and then fold due to low service quality and low ridership.

Across the board, cities would do well to ask hard questions about ridership assumptions, service quality, staffing plans and wages, prices, safety, and what happens if it all goes south. As cities, investors, and bike advocates look for the next big thing to help systems expand further and faster, let’s make sure we know exactly what we’re getting.

The model assumed systems that operated 365 days per year at $1/ride. Capital costs were estimated at $200/bike, replaced every 2 years. For operating costs, we assumed 8 staff would be required for under 200 bikes, with one additional staff person for every additional 50 bikes. Staff would be paid $16/hour for 8 hour days with 28% for benefits. Overhead on operating costs was assumed to be 15%.↩